Mar 19 – Changes to FOS

This month the FCA announced it is ploughing ahead with increasing the award limit for the Financial Ombudsman Service (FOS) from 1 April.  Seemingly the majority of those who responded to its proposals strongly disagreed, including AMI, yet the FCA has said “this has not changed our view” and plans to implement all of its proposals unchanged – a significant shift in the regulatory framework with very little notice.  The Senior Managers & Certification Regime stemmed from legislation and has given the industry a practical lead time to prepare.  This sudden review of FOS was decided by the FCA who has given firms an unnecessarily arbitrary deadline.

The original purpose of FOS has now changed.  It was set up to cater for cases that could be dealt with speedily and by using dispute resolution techniques to gain agreement. Cases above these levels were deemed to be more appropriate for legal decisioning in courts based on contract law. By more than doubling the compensation limit the FCA has lost sight of this.  When the industry supported the innovative introduction of the safety nets of FOS and the Financial Services Compensation Scheme it was important that these were limited by scope and the scale of compensation. Continual expansion of both risks users of financial services taking less responsibility for their actions and decisions.

The FCA’s idea that these changes are appropriate is a worrying stance.  In its feedback statement, the FCA has pointed out that it has increased its estimates of the number of claims paid above the current limit.  It however seems to miss the point.  This is not the first time we are seeing an over-reliance and focus on data analysis, assumptions and theories, which are resulting in a siloed and ultimately flawed approach detached from reality.  Despite no previous acknowledgement of the regulatory framework, in its response the FCA suddenly decided to draw international comparison to justify its decision without further research or comment – the new £350,000 limit is “significantly below the roughly £600,000 limit” in Australia, therefore the UK legal basis on which FOS was set up is seemingly irrelevant.

There appears to be a lack of balance in the regular expansion of the FCA’s remit as we continue to see a widening of scope every time any “harm” is identified without any reflection on whether this is appropriate or with sufficient justification.

Firms have less than a month to update their information on complaints handling and to train staff on the new, complex limits.  The one month that firms have been given is all because the FCA thought it was “logical” to align the timings with the expansion of remit to include larger SMEs.  However it hasn’t considered that the SME proposals were first floated three years ago with a formal consultation in January 2018.  Claiming that firms should “already be planning” for the new award limits as the consultation was published in October reaffirms what the regulator considers to be a true consultation process.  Unfortunately the realisation this has been another consultation in name only is unsurprising given the noticeable shift in the regulatory approach over recent years.

Aileen Lees
Head of Policy

March 2019